The recent historic bailout of mortgage giants Fannie Mae and Freddie Mac will likely come as welcome news to many homebuyers and homeowners looking to refinance. Already, interest rates on 30-year fixed mortgages are down as much as three-quarters of a point or more from their recent high of around 6.5 percent. As a result, more applicants are entering the home buying pool and those in desperate need of refinancing are finding some relief.
But for homeowners already behind on their mortgage payments, or who owe more than their homes are now worth, the plan unveiled recently by Treasury Secretary Henry Paulson offers little in the way of extra relief. For the most part, the takeover of Fannie Mae and Freddie Mac will likely have a positive effect on retirees planning a new home purchase during retirement. The lower interest rates come as welcome news to any demographic.
However, the lower rates for retirees living on a fixed income means more money will be available to provide for everyday living expenses such as groceries and prescription medications. For example, homebuyers purchasing a $200,000 home with 20 percent down would save around $130 a month if rates are a full percentage point lower. This translates into a savings of over $1,500 a year.
Of course, the takeover is not good news for everyone. The move is going to translate into tighter lending standards making it more difficult for some applicants to get a loan. Generally, however, most retirees have enough assets to prevent them from falling into the category of high-risk loans.
Furthermore, over 50 percent of buyers in retirement communities such as Del Webb pay cash for their new home. And those that do finance often are putting a substantial down payment down.
The overall result of the takeover should hopefully translate into more buyers in the market–a move welcomed by all sellers. Like many potential buyers, retirees find themselves waiting until their existing home sells before buying a new one. If the government’s move increases home buying as expected, more retirees will be able to make the much-desired move to their new retirement community.